Extension of Competition Law Exemption to Vessel Sharing Agreements

In a notification dated July 4, 2018, the Ministry of Corporate Affairs (MCA) has granted an additional three year extension to the Vessel Sharing Agreements Exemption (VSA Exemption) in the liner shipping industry. This exempts VSAs from scrutiny under Section 3 (i.e., anti-competitive agreements) of the Competition Act, 2002 (as amended) (Act). This extension, which is a furtherance of international best practice, has come as a source of relief to the liner shipping industry, given that the last extension of the VSA exemption expired on June 19, 2018. The expiry of the previous exemption had led to speculation regarding the status and future of the VSA exemption.

The applicability of the VSA Exemption extends to carriers of all nationalities, operating ships of any nationality from any Indian port as long as such agreements do not include concerted practices involving fixing of prices, limitation of capacity or sales and the allocation of markets or customers.

The VSA exemption was first introduced on September 19, 2012 for a period of one year and has been continuously extended thereafter. The last extension, exempting VSAs from the purview of Section 3 of the Act, was in effect for a period of one year, from June 20, 2017 to June 19, 2018 and subjected all VSAs to monitoring by the Directorate General of Shipping (DG Shipping).

In line with the previous exemption, the current VSA Exemption also requires that the persons responsible for operating such ships in India, file copies of existing VSAs or VSAs that are proposed to be entered into during the existence of the exemption (i.e. until July 3, 2021) along with other relevant documents with DG Shipping. These documents must be submitted within 30 days of the publication of notification in the Official Gazette, i.e. July 4, 2018, or within ten days of signing of such agreements, whichever is later.

The peculiar characteristics of the liner shipping industry, which is highly capital intensive, along with the realisation that sharing container space on liner ships provides greater efficiencies in relation to connectivity and frequency of ships between any two ports, have led to the introduction and continuous extension of the VSA exemption. Moreover, the exemption allows for greater participation by small and medium shipping companies leading to increased competition in the liner shipping industry.

In line with the government’s continuous efforts to maintain a cohesive and focused policy regime for facilitating ease of doing business in India, the present VSA Exemption is a welcome move by the MCA.

Partner in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Anshuman advises on the full range of competition matters, including merger control, abuse of dominance and cartel enforcement. He can be reached at anshuman.sakle@cyrilshroff.com

Senior Associate in the Competition Practice at the Delhi office of Cyril Amarchand Mangaldas. Neelambera advises on a full range of competition matters, including abuse of dominance, cartel enforcement and merger control. She can be reached at neelambera.sandeepan@cyrilshroff.com

Associate in the Competition Practice at the Mumbai office of Cyril Amarchand Mangaldas. Ruchi advises on a full range of competition matters, including merger control and abuse of dominance. She can be reached at ruchi.verma@cyrilshroff.com

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